The Hawaii Supreme Court held that a health insurer did not have subrogation rights against third-party tortfeasors who caused injury to its insureds. Yukumoto v. Tawarahara, 2017 Haw. LEXIS 92 (Haw. May 26 2017).

    Gregory Yukumoto was injured while driving his moped and struck by Ruth Tawarahara, driving her SUV. Yukumoto sustained serious injuries. Yukumoto sued Tawarahara. Hawaii Medical Service Association (HMSA) filed a Notice of Claim of Lien, contending that HMSA had paid $325,824.33 for medical expenses associated with Yukumoto's injuries.

    Yukumoto filed a Petition for Determination of Validity of Claim of Lien pursuant to Haw. Rev. Stat. 663-10. According to the Petition, Yukumoto's wage loss and general damages claim was approximately $4,000,000. The Yukumotos contended that Tawarahara had only $1,100,000 in coverage through a State Farm policy, which State Farm agreed to pay "pursuant to a general damages only release." 

    The parties settled the lawsuit. Tawarahara did not admit fault. Coupled with a $50,000 "underinsured motorist claim" that Yukumoto submitted to GEICO, the Petition contended that Yukumoto's total recovery before payment of attorneys' fees and costs was $1,150,000. This left $2,850,000 in uncompensated damages. 

    Yukumoto sought a ruling that HMSA had no lien or subrogation rights in the personal injury settlement because HMSA could not satisfy the provisions of Haw. Rev. Stat. 663-10. Under the statute, Yukumoto argued that for a health insurer to receive any portion of a plaintiff's  recovery, the health insurer had the burden of proving that the settlement or recovery duplicated medical expenses that were paid by the health insurer. The circuit court eventually ruled that all settlement funds be released to Yukumoto's counsel and that HMSA was not entitled to a payment of the amount of its claimed lien. HMSA appealed. 

    The Supreme Court ruled that HMSA did not have equitable subrogation rights in the context of personal insurance. It was apparent that the legislature intended to limit a health insurer's right of subrogation under Haw. Rev. Stat. 663-10 and 431:13-103. Any contractual provision conflicting with Haw. Rev. Stat. 663-10 was invalid, and HMSA was not entitled to contractual subrogation rights. Consequently, the circuit court's judgment was affirmed.

    Hawaii courts recognized the difference between property/casualty insurance and personal insurance by allowing the insured to maintain subrogation rights in a property insurance context and limiting subrogation rights in personal insurance contexts. Tort recovery in personal insurance contexts often included payment by the tortfeasor for intangible losses such as life, death, health, pain and suffering, and physical well being, where it was difficult to ascertain exact measurements of loss. Therefore, recovery for medical insurance benefits and tort damages did not involve the principles which supported equitable subrogation in the property/casualty context. Such recovery did not necessarily produce a windfall or duplicative recovery for the insured. Accordingly, the insurer did not have equitable subrogation rights in personal insurance contexts.

    Further, the plain language of Haw. Rev. Stat. 663-10 demonstrated that the legislature limited the subrogation rights of health insurers. The statute provided that any judgment entered would include the amount due and owing to any holder of a valid lien, to be paid to the lienholder from "special damages recovered by the judgment or settlement." Thus, the legislature limited the type of damages from which a lienholder could be reimbursed. Moreover, Haw. Rev. Stat. 431:13-103 (a) (10) prohibited the insurer from refusing to provide or limiting coverage available to an individual because the individual may have a third-party claim for recovery of damages. The legislature did not provide that the lienholder could be reimbursed from an insured's recovery of general damages, which were difficult to determine. 

    Finally, HMSA argued that it had contractual subrogation rights because Yukumoto's agreement with HMSA's included a right of subrogation. The court was not convinced, however, because the statute took precedence, making the contractual provision invalid. HMSA was not entitled to contractual subrogation rights. 

    Therefore, the circuit court's judgment was affirmed.